(TNND) — Less than half of American households have enough savings or regular cash flow to cover a $1,000 emergency expense, according to a new Bankrate report.
And nearly 30% of households have more credit card debt than emergency savings.
“We definitely see a lot of people are getting squeezed by inflation, higher interest rates,” Bankrate Principal Analyst Ted Rossman said.
Just 47% of people told Bankrate they could cover such an emergency expense.
Bankrate has conducted annual surveys on emergency savings for years, and this year’s results indicate that it’s getting harder for Americans to put something away for a rainy day.
But a survey change this year makes direct comparisons to previous results difficult.
“I would say sort of more anecdotally, from more of a consumer standpoint, that yes, people are definitely finding it hard to save,” Rossman said. “The personal saving rate has dipped significantly. It wasn’t too long ago that was above 7%, and now it’s around (3.5%). We’re definitely seeing a rising cost of living causing people to dip into savings, take on debt.”
This year’s survey found 29% of people have more credit card debt than emergency savings, 44% have more savings than credit card debt, 19% have neither, and the rest said they don’t know.
Even for folks without the burden of credit card debt, Rossman said a lack of savings puts them in a precarious position.
Families who both lack an emergency fund and who carry credit card debt might feel pulled in two directions. So, which should be the priority to right the financial ship?
Rossman said he’d tackle both at the same time.
“The reason that it’s so important is because it really is two sides of that same coin, where if you don’t have enough savings, the next unexpected expense is going to land on a credit card,” he said, “and then that’s going to start the cycle over again.”
The average credit card rate is just under 20%.
That’s still really high, Rossman said.
And a person making minimum payments at that average rate, with an average credit card balance of around $6,500, would stay in debt for 18 years and pay more than $9,000 in interest, he said.
But depleting savings also leaves a household vulnerable when the car breaks down or someone has an emergency room visit, Rossman said.
Experts generally recommend that households build up enough savings to cover six months of expenses if needed, Rossman said
But he said that’s easier said than done for a lot of folks living paycheck to paycheck.
So, take small steps to start, he said.
Break financial goals into segments.
And don’t be discouraged if you can’t save up six months’ worth of expenses. Even a safety net of $500 or $1,000 might make a huge difference.
Find a high-yield savings account and set up automatic transfers on payday, he said. Some of the best savings rates are over 4%.
And Rossman said it’s important for an emergency fund to reside in a checking or savings account and not be tied up in stocks or another kind of investment where liquidity is a problem.
Making saving a routine act is vital, Rossman said.
And he advised people to be intentional about saving money. Do it off the top, not just with whatever’s left over at the end of the month.
“When that paycheck hits your checking account, have an automatic transfer go into this external savings account,” he said. “There’s really two benefits to that. One is you’re automating the process, so you don’t need to remember to do it every time. The other thing is out of sight, out of mind. Sometimes, if it takes you a day or two to access the money in one of these online savings accounts, sometimes that arm’s length is a good thing. It prevents you from tapping into it when it’s not necessary.”
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